Another step to solving the housing crisis: downsize cities by destroying neighborhoods

Slowly America comes to grip with the terrible decisions necessary to solve the housing crisis. We have too many vacant homes, the key driver of the housing crisis. A surplus of anything leads to falling prices until the surplus disappears, one of the iron laws of economics. Yet even now this is not understood by many Americans, hence the increasingly insane proposals to prop up home prices at levels Americans cannot afford. But since we do not see the problem, we can neither treat it early nor effectively cope with it once it hits in full force.

As seen in the previous posts in this series (see the links at the end) desperate times force drastic policy changes. This post describes the growing housing crisis in 2 dimensions.

(1) Approximately 15% of the housing units in the US were vacant in the 4th quarter (per the US Census). That’s almost 18 million units. In the 4th quarter of 1994 it was 10%; in the 4th quarter of 1998 it was 11%. Worse, many of these vacant units are in areas with net out-migration, usually due to lack of jobs — one of the most intractable of economic ills, usually rooted in a combination of dysfunctional local governance and entrenched organized crime.

(2) Needless to say, these things also tend to create unemployment and homelessness. Homeless people and people-less homes.

After weeks in the national spotlight, the tent city in Sacramento is closing its run. Gov. Arnold Schwarzenegger and Mayor Kevin Johnson said Wednesday that they would move the riverside encampment’s 125 residents – down from a peak of 200 – to the state‘s fairground until at least July. The move, according to the governor, will give the homeless a “dry shelter, reliable health care and warm meals.”

While encampments and street living have always been a part of the landscape in big cities like Los Angeles and New York, these new tent cities have taken root – or grown from smaller enclaves of the homeless as more people lose jobs and housing – in such disparate places as Nashville, Olympia, Wash., and St. Petersburg, Fla.

In Seattle, homeless residents in the city’s 100-person encampment call it Nickelsville, an unflattering reference to the mayor, Greg Nickels. A tent city in Sacramento prompted Gov. Arnold Schwarzenegger to announce a plan Wednesday to shift the entire 125-person encampment to a nearby fairground. That came after a recent visit by “The Oprah Winfrey Show” set off such a news media stampede that some fed-up homeless people complained of overexposure and said they just wanted to be left alone.

The surging number of homeless people in Fresno, a city of 500,000 people, has been a surprise. City officials say they have three major encampments near downtown and smaller settlements along two highways. All told, as many 2,000 people are homeless here, according to Gregory Barfield, the city’s homeless prevention and policy manager, who said that drug use, prostitution and violence were all too common in the encampments.

“That’s all part of that underground economy,” Mr. Barfield said. “It’s what happens when a person is trying to survive.” He said the city planned to begin “triage” on the encampments in the next several weeks, to determine how many people needed services and permanent housing. “We’re treating it like any other disaster area,” Mr. Barfield said.

… The growing encampments led the city to place portable toilets and security guards near one area known as New Jack City, named after a dark and drug-filled 1991 movie. But that just attracted more homeless people. “It was just kind of an invitation to move in,” said Mr. Stack, the outreach center manager.

On a recent afternoon, nobody seemed thrilled to be living in New Jack City, a filthy collection of rain- and wind-battered tents in a garbage-strewn lot. Several weary-looking residents sat on decaying sofas as a pair of pit bulls chained to a fence howled.

Property abandonment is getting so bad in Flint that some in government are talking about an extreme measure that was once unthinkable — shutting down portions of the city, officially abandoning them and cutting off police and fire service. Temporary Mayor Michael Brown made the off-the-cuff suggestion Friday in response to a question at a Rotary Club of Flint luncheon about the thousands of empty houses in Flint. Brown said that as more people abandon homes, eating away at the city’s tax base and creating more blight, the city might need to examine “shutting down quadrants of the city where we (wouldn’t) provide services.”

He did not define what that could mean — bulldozing abandoned areas, simply leaving the vacant homes to rot or some other idea entirely. On Monday, a city spokesman downplayed Brown’s comments.

Bob Campbell, Brown’s spokesman, said the acting mayor was speaking hypothetically about a worst-case scenario, “not something that would be laid out in the next six months” while he’s in office.

But City Council President Jim Ananich said the idea has been on his radar for years. The city is getting smaller and should downsize its services accordingly by asking people to leave sparsely populated areas, he said. “It’s going to happen whether we like it or not,” he said. “We’d have to be creative about it, but it’s something worth looking into. We’re not there yet, but it could definitely happen.”

… The concept of “shrinking cities” isn’t new to urban areas similar to Flint. Last year, the city of Youngstown, Ohio, proposed incentives to encourage people to move out of nearly empty blocks and relocate to more populated areas closer to the heart of the city. Some people were offered upward of $50,000, according to news reports. The idea was to shut down entire streets and bulldoze abandoned properties so the city could discontinue services such as police patrols and street lighting, according to a CNN report.

SOUTH BEND, Ind. – Mercy James thought she had lost her rental property here to foreclosure. A date for a sheriff’s sale had been set, and notices about the foreclosure process were piling up in her mailbox. Ms. James had the tenants move out, and soon her white house at the corner of Thomas and Maple Streets fell into the hands of looters and vandals, and then, into disrepair. Dejected and broke, Ms. James said she salvaged but a lesson from her loss. So imagine her surprise when the City of South Bend contacted her recently, demanding that she resume maintenance on the property. The sheriff’s sale had been canceled at the last minute, leaving the property title – and a world of trouble – in her name. “I thought, ‘What kind of game is this?’ ” Ms. James, 41, said while picking at trash at the house, now so worthless the city plans to demolish it – another bill for which she will be liable.

City officials and housing advocates here and in cities as varied as Buffalo, Kansas City, Mo., and Jacksonville, Fla., say they are seeing an unsettling development: Banks are quietly declining to take possession of properties at the end of the foreclosure process, most often because the cost of the ordeal – from legal fees to maintenance – exceeds the diminishing value of the real estate.

The so-called bank walkaways rarely mean relief for the property owners, caught unaware months after the fact, and often mean additional financial burdens and bureaucratic headaches. Technically, they still owe on the mortgage, but as a practicality, rarely would a mortgage holder receive any more payments on the loan. The way mortgages are bundled and resold, it can be enormously time-consuming just trying to determine what company holds the loan on a property thought to be in foreclosure.

In Ms. James’s case, the company that was most recently servicing her loan is now defunct. Its parent company filed for bankruptcy and dissolved. And the original bank that sold her the loan said it could not find a record of it. “It is what some of us think is the next wave of the crisis,” said Kermit Lind, a clinical professor at the Cleveland-Marshall College of Law and an expert on foreclosure law.

For older industrial cities like South Bend, hard times in the mortgage market began before the recent national downturn, as did the problem of bank walkaways. In the case of Ms. James, a home health care administrator, the foreclosure proceedings began in the summer of 2007, when she could not keep up with the adjustable rate on her mortgage. In Buffalo, where officials said the problem had reached “epidemic” proportions in recent months, the city sued 37 banks last year, claiming they were responsible for the deterioration of at least 57 abandoned homes; the city chose a sampling of houses to include in the lawsuit, even though the banks had walked away from many more foreclosures. So far, five banks have settled.

In Kansas City, Rachel Foley, a lawyer who handles housing cases, said bank walkaways were “a rare occurrence two to three years ago.” “We’re seeing them dumped more and more at the moment,” she said.

… The soft housing market and the vandalism that often occurs when a house sits empty are the two main factors influencing the mortgage holders’ decisions to walk away, said Larry Rothenberg, a lawyer for Weltman, Weinberg & Reis, one of the larger creditors’ rights firms in the country. “Oftentimes when the foreclosure starts out, it’s a viable property,” Mr. Rothenberg said, “but by the time it gets to a sheriff’s sale, it might not have enough value to justify further expense. We’ve always had cases where property was vandalized or lost value, but they were rare compared to these times.”

… Guy Cecala, publisher of Inside Mortgage Finance, an industry newsletter, said some properties had become such liabilities for investors that it was not even worth holding on to them to strip valuable fixtures, like kitchen appliances, toilets and hardware. “The whole purpose of foreclosure is to take title of the property, sell it and recoup what money you can,” Mr. Cecala said. “It’s just a sign of the times that things are so bad no one wants to take possession of the property.”

In South Bend, boarded-up houses for whom no one has stepped forward are dotting the landscape, adding a fresh layer of blight to communities that were already scarred from the area’s industrial decline.

Afterword

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For more information from the FM site

To read other articles about these things, see the FM reference page on the right side menu bar. Of esp interest are:

Don’t go near those abandoned homes. You’ll hear the wails of children crying by the corpses of their parents, and agony screams of innocent women burned by the General Dynamics white phosporous fog that the Abrams tanks spread in their advance. Unmanned Devil Drones spew their Hellfire down on thatchets in the Arab hills and deserts,burning and smashing real people indiscriminately like roaches. Occasionally you see the lurking silhouette of a Homo Marine, who was taken down with his victims.Welcome America, to your New Hell. Old Shedevil Generals dressed in trinket medals, trying desperately to feel proud of their Cannibal children, will rule your roost now.
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.Fabius Maximus replies: Blah, blah, blah. This sort of thing is as useful to us as yelling at the engine in your Chevy when it needs new rings. We have specific problems, and this emotionalism is useless to identifying the problem and fixing it.

We’ve had a round on this topic already, where lefties like me shout “are you mad? Destroying houses when people are homeless!” Now, I can admit the difficulties of any proposal to “turn over” abandoned homes to homeless people.

However, there will still be homeless people, more and more of them, and the better question is, how will the society at large deal with them? Perhaps they can’t be merely stuck abandoned houses in undesirable neighborhoods (and might not choose to be), but what is the alternative, and what would its costs be?

There is one flaw in the argument that an excess of homes is pulling down home prices. That may apply to new developments in California’s Central Valley, for example, but does not apply to the neighborhoods in the articles cited above — since those are neighborhoods where no one wants to live, and hence can’t be counted as part of a surplus.
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.Fabius Maximus replies: You are making this too complex. Everybody loves fish or apples, but a surplus of either forces prices down.

As I have said so many times, there are of course better ways to handle this situation. But a society disfunctional enough to get into this situation is almost certainly incapable of handling it well. Which is why I keep saying our observation-orientation-decision-action (OODA) loop is broken. IMO that is the key to understanding 21st century America.

As an attorney working at a firm that represents condominiums, when a unit stops paying maintenance it is normally a sign that a foreclosure (often coupled with bankruptcy (which is normally a good thing)) is just over the horizon. I have observed that as the housing market crisis has deepened, many banks have been adjourning sheriff’s sales over and over again, while the owner stays in the unit without paying maintenance or anything else (except maybe non-dischargable taxes). This puts the condo in a blackhole where it keeps losing maintenance while the bank delays indefinitely on cutting its losses. It is, of course, bad for the other homeowners who have to cover the budget shortfall and subsidize their neighbors.

I suppose the point is that the ripple effects of the housing market crisis caused by irresponsible lenders/borrowers harms everyone (even those who were fiscally responsbile) in ways beyond federal government spending. Ultimately, I think the banks should be whiped clean in bankruptcy and broken up, instead of dumping money down whatever pit it is going in, coupled with new regulations and regulatory agencies that are not subject to regulatory capture and have some kind of wall or restriction from employee migration to the same private industries they regulate. Unfortunately, none of this is happening or planned, as Goldman Sachs and other Wallstreet firms have “captured” the SEC, the reserve, and the treasury. It is not surprising that Hu and Putin have taken a hard line at the G-20.

As a follow up, I note that a quick foreclosure in this state (NJ) takes about two years. I have seen them going on three or more.
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.Fabius Maximus replies: That’s an important factor in many states. Stop paying your mortgage, get a year or more of free rent. Esp as bank’s foreclosure staff are backed-up, so that the routine process often takes longer than usual. That’s big money to lower middle class households.

“The way mortgages are bundled and resold, it can be enormously time-consuming just trying to determine what company holds the loan on a property thought to be in foreclosure. In Ms. James’s case, the company that was most recently servicing her loan is now defunct. Its parent company filed for bankruptcy and dissolved. And the original bank that sold her the loan said it could not find a record of it.”

So… even if Ms. James won the lottery tomorrow and wanted to pay her mortgage, there would be no one to whom to pay it? Yet, the house isn’t hers because she hasn’t paid? Am I missing something, or is this totally mind-boggling? This property is in limbo, and there’s no way to get it out?

Shouldn’t there be some way (perhaps using eminent domain) for the city or state to take the property in return for absolving the owner of liability and paying some percentage of equity (it should be a percentage as the owner was in default); assume the loan (if a lender exists) at a discount (it should be discounted because a government guarantees the payments); and use the property for Section 8 or similar housing? The state would have to appoint someone as caretaker of the property — perhaps the original owner, were he or she willing — in return for a fee. Once the loan was paid, the state would own the property and could dispose of it in any reasonable manner.
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.Fabius Maximus replies: The house is hers, but as a result of the process it is now a wreck. This is the essence of banks walking away from properties.

I — and others — have long written about this as an inevitable consequence of the housing bust. Foreclsoure is an expensive process in many states, and the costs will too often exceed the remaining equity value of many low and middle income properties. Banks will not just say “oops”, it’s yours now. The go throught the process so that there are no winners. Not even survivors.

This is a circumstance for which government action is needed, but there are no mechanisms at present to help. So more homes, more wealth, is unnecessarily chewed up. More people’s finances destroyed.

Don’t bother writing comments about what should be done. We could meet in a local pub and devise a better system in three rounds of drinks. So what. It would be just as effective to have five rounds of drinks and hope for the Flue Fairy to come.

I will not bother repeating my by now standard text about self-government, and the need for poltical action.

“Property abandonment is getting so bad in Flint that some in government are talking about an extreme measure that was once unthinkable — shutting down portions of the city, officially abandoning them and cutting off police and fire service.”

Ugh. That sounds uncomfortably familiar. Hopefully we could do it in a semi organized fashion. A state or federal effort to identify abandoned areas, raze them and turn them into parks. I don’t think leaving the buildings standing is feasible unless they can cut off water and electricity too.

FM reply to comment #2: “As I have said so many times, there are of course better ways to handle this situation. But a society disfunctional enough to get into this situation is almost certainly incapable of handling it well. Which is why I keep saying our observation-orientation-decision-action (OODA) loop is broken. IMO that is the key to understanding 21st century America.”

Can you elaborate a bit on exactly how our OODA loop(s) are broken? To what extent has the digital revolution exaccerbated this problem? I am far from a systems analyst, but even a novice can see that many of the firewalls that used to exist between different nations, economic sectors, and even individuals have been oliterated in recent years. To use the current financial crisis as an example, it used to be that investors could gain a competitive advantage by being better-informed, by being well-researched. With the advent of the internet, it is much harder to gain that advantage than it used to be – thus shifting the initiative to those best able to interpret the data, and so on. The old system – the one “pre-internet” types like me grew up in – may have been less efficient, slower, and even stodgy – but it had its advantages, too. One might say that “ineffiency has its own effeciencies.” To borrow an analogy from ecology, Our financial systems world-wide now resemble a mono-cultural forest or nursery waiting to be mowed down by one plant virus or lightning strike. Systems lacking in diversity, genetic or otherwise, are more prone to catastrophic events. Are economic systems any different?

I’ve gotten off topic a bit from my original point, but the two are connnected – and not in a heartening way: marry a faulty OODA loop and a monolithic system with little adaptive elasticity, and what do you get? I do not know, but it cannot be pretty.

On the point of abandoning vacant or under-occupied sections of hard-hit cities, the idea has merit – but IMO only if the vacant structures are in fact razed. Isn’t leaving them intact but abandoned an invitation for 4GW on our own soil? Unless I miss my guess, that’s an on-going concern of yours, is it not?
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.Fabius Maximus replies: You make a many good points. I esp agree about the global system becoming more integrated and homogenous, perhaps more stable but vulnerable to large magnitude cycles. Here are a few other comments.

(1) Look at the worst areas of the South Bronz during the late 1980’s, like Dresden after the bombing. Abandoned buildings are destroyed, one way or another.

If you have several blocks or large groups of houses it’s one thing to destroy them but two or three houses in a neighborhood destroying them will cause more depreciation and the cycle will get worse. I face this now. On my street we have had three foreclosures! Less than a quarter of mile away two more. One pretty much destroyed. So far, two have sold at around 50% of there peak value.

We may of bypassed the housing problem with employment issue’s. We are getting into a ping pong effect. I have to agree with Roubini’s suggestions of nationalizing and breaking up the banks and redoing all mortgages. Maybe even restricting new building permits. But none of the suggestions made will move forward until the people are ready to support them. I’ve chosen to stay involved and continue to run for office. Maybe, by next election, the voters will be ready for some real change. We shall see.
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.Fabius Maximus replies: I don’t know how many articles I have to post about this, explaining that bad things happen to long-term empty houses. It’s not a matter of doing nothing and then everything is wonderful. The only good alternative, except for rich areas (e.g., gated communities), is to put someone in the home. Otherwise they tend to get stripped, vandalized, and perhaps occupied by squaters (or meth labs) and/or burned. Strong neighborhoods sometimes can manage a few vacant homes, with luck.

FM made an excellent reply to Pete, who asked “Can you elaborate a bit on exactly how our OODA loop(s) are broken?”

The strongest evidence that America’s OODA loop is broken is that Americans recognize a problem, recognize that the current policy isn’t solving that problem but instead often making it worse, and Americans often recognize parallels with failed policies in other countries — yet Americans persist in applying the current failed policy, hoping that this time it will somehow turn out differently. Examples:* TARP (parallels Japan’s fiscal/financial policy in the 90s)* Afghanistan (Parallels Iraq or Viet Nam, French in Indochina)* War on Drugs (Parallels Prohibition in the 20s)* Peak Oil (can’t think of a parallel offhand, this one’s scary)* U.S. foreign policy (parallels Britain just before WW I)* Culture wars (parallels Germany in the late 20s, Russia in the late 1910s, America in the McCarthyism of the 50s)* Income distribution inequities (parallels America’s Gilded Age, Russia in the late 19th century)* Outsourcing jobs (parallels Spain’s collapse in the 16th century after Pizarro’s conquest of the Inca sent home vast shiploads full of gold)* Permanent underclass (Parallels Rome’s grain dole after Augustus)* Fabulously splendid neighborhoods surrounded by rings of incredible poverty (parallels Brazil’s highrise penthouses surrounded by rings of favela shanties)* Political corruption (parallels the Shah’s Iran just before the 1978 revolution)* Declining literacy & education (parallels Rome after the 1st century A.D., Spain after Pizarro’s Inca conquest)* Massive prison overcrowding, crazy felonization of almost every possible human activity (parallels the Grand Inquisition in the 14th century onward, also various witch hunting hysterias from the 16th century onward in various countries including England)

The policies Americans approve of for dealing with all these problems boil down to repeating the same failed responses we’ve tried for the last 30 years. (More drugs = solution: more cops & more military involvement in drug enforcement; Afghanistan falls apart = solution: more troops in; prison overcrowding = solution: crack down harder with more laws against more activities, now felonizing teenagers who send one another nude pictures of themselves on cellphones; TARP fails = solution: bigger bailouts for rich Wall Street firms; permanent underclass = solution: more welfare payments; declining literacy & education = solution: more social promotion & lower educational standards; outsourcing jobs = solution: more free trade; culture wars = solution: more emotional invective & more public demagoguery.)

This bizarre behaviour suggests that Americans are radically disconnected from reality, like the wife who gets beaten by an abusive husband every night but persists in proclaiming “He really loves me” and “He’ll stop soon” and “It’s my fault, if I were a better person this wouldn’t happen” and “It’s because of money problems, if only we had more money he’d never do this,” etc.

And taking into consideration the severity of the present cries we should act very decisively.
Nothing less then carpet bombing! Scorched earth policy! To finish with poverty, homelessness and staff like that once and for all!
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.Fabius Maximus replies: Why don’t you go to Flint and share you insights with them about the easy solutions to these problems?

These comments about housing illustrate the defective observation-orientation-decision-action (OODA) loop of 21st century Americans. Part of this is an inability to understand the concept of consequences. Imprudent actions have unpleasant results. Here we see, as these articles explain (and as I summarized in comment #8), that bad things happen to vacant homes. When there are many vacant homes, bad things happen to those neighborhoods.

Alex finds this difficult to accept, perhaps believing that if we wish really really hard nice things will happen instead (it worked to save Tinkerbell!).

A nation with so many people having such child-like thinking should expect more hard times ahead. Like a blind driver on a crowed highway, bad results are so inevitable they should not be considered “accidents.”

It looks like there might be around 700,000 – 1,000,000 homeless in the US of which about 40% are families, a high percentage are currently or recently employed, 2-400,000 Veterans of which 89% received honorable discharges and so on.

The #1 reason cited in the UK, Canada and US for homelessness is high cost of housing. Then the US has by far the highest per capita incarcerated population in the world. Interesting that in order to save the housing price crisis it is recommended to destroy excess housing rather than put more homeless people into empty houses.

It would be very helpful to find good data on the empty house situation outside of exceptionally hard hit areas due to industry collapse, such as in Michigan etc. Although clearly many of those zones could use reduction, I wonder if that is really what is called for nationwide. In any case, it is a little strange that so many are on the streets at the same time so many housing units are empty. Understandable for many reasons, but in very simple, non-commercial terms, still a bit strange.

* Wikipedia entry on Homelessness in the United States* Myth-Busting Homeless Statistics, posted at Homeless Tales, 24 October 2008* Homelessness Statistics and Data, US Government Substance Abuse & Mental Health Services Administration (SAMHS)
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.Fabius Maximus replies: What fraction of the long-term homeless are capable of functioning in a home of their own? How many have drug, alcohol, or mental problems? Let’s experiment — you start a petition to have folks from the streets and jails given free homes in your neighborhood! Please report back on the results!

“there might be around 700,000 – 1,000,000 homeless”

Your opening sentence matchs the standard pitch about homelessness by advocacy groups, who have a long history of distorting the stats so that they are IMO almost worthless (the recent headline-grabbing report on homeless among children is a fine example of faux-analysis). For example, they conflate long-term homelessness with temporary needs (typically families between homes) — which are very different problems (both serious, of course).

You link to the SAMHS’s home page, which says “Over a 5 year period, about 2–3% of the U.S. population (5–8 million people) will experience at least one night of homelessness.” That very broad definition drives the propaganda campaign about homelessness, but does not match what most people think of homeless.

“As many as 3.5 million people experience homelessness in a given year (1% of the entire U.S. population or 10% of its poor), and about 842,000 people in any given week. Most were homeless temporarily. The chronically homeless population (those with repeated episodes or who have been homeless for long periods) fell from 175,914 in 2005 to 123,833 in 2007. (from the stats of the Dept Housing and Urban Development)”

FM replied: “…our broken national OODA loop. I have no idea as to the causes.”

There is a third O, outside the loop, upon which OODA rests: Objective. The critical Orientation step depends on having a clear and realistic idea of what is to be accomplished.

In the absence of a clear and realistic Objective, Orientation cannot proceed. In our system, most knowledgeable input to this process comes from people closely connected to industries involved in whatever is being considered… so theirs are the values from which the undeclared and unexamined Objectives are formed. We get solutions to the financial crisis which protect bankers and brokers. It’s not that general public interest is excluded because special interests are so powerful, but that special interests are so powerful because there is no working mechanism to define objectives consistent with general public interest and clamp Orientation to those goals.

Our political system has lost the ability to identify and clarify realistic, shared objectives (assuming it ever had it). Identifying the reasons for that, and how it might be fixed, is yet another problem we cannot solve until we recognize it as a problem and reach a broad agreement as to what we want that we can hope to achieve — the very sort of thing we lack effective means to do.

It’s not so much that the OODA loops are broken as that a fundamental input — a clear, realistic Objective shared throughout the general public — is AWOL.
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.Fabius Maximus replies: Thanks for this comment. This is worth some thought.

electrophoresis wrote: “… failed responses we’ve tried for the last 30 years. (More drugs = solution: more cops & more military involvement in drug enforcement;”

The “War on Drugs” is a failure only if one naïvely believes its purpose is to minimize the direct and collateral damage done by the outlawed substances, or to dramatically curtail their use. The purposes of the War on Drugs include to keep the idea that mind-altering drugs (other than alcohol) have worthwhile non-medical uses unthinkable in mainstream society; to make it impossible to discuss psychoactive drugs or altered states of consciousness in a sane way; to keep both users and non-users frightened and suspicious; to provide a pretext for erosion of liberty, increased police powers and asset forfeiture; and to put a lot of brown people in jail. It’s been very successful at those goals.

That we pursue, quite effectively, actual goals which most Americans would not condone is the subject of my previous comment: the suggestion that the OODA loops themselves aren’t broken, but they have faulty input. Garbage in, garbage out.
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.Fabius Maximus replies: No matter how bleak my vision, someone comes along and tops it! This comment provides some food for thought.

Excerpt: “In Ms. James’s case, the company that was most recently servicing her loan is now defunct. Its parent company filed for bankruptcy and dissolved. And the original bank that sold her the loan said it could not find a record of it. ‘It is what some of us think is the next wave of the crisis,’ said Kermit Lind, a clinical professor at the Cleveland-Marshall College of Law and an expert on foreclosure law.”

I’ve been thinking about this myself. Doesn’t the way in which mortgages have been sold, broken up and combined with other paper, then re-sold again cloud the whole issue of ownership? To me, the most just and socially desirable solution is that if no one can be found who has a legally demonstrable claim on a property, then the person who is presently in possession of it ought to get legal title. Indeed, what right does some corporation who “services” a mortgage have to collect money on behalf of persons who can’t even be identified?

Some court precedents, or perhaps new legislation, that clearly establishes such a right of the current possessor might help to undo some of the damage caused by the excessively creative antics of our financial clowns. Yes, those “troubled assets” just keeled over and went comatose…but so what—I’ve never liked clowns.

As for vacant individual homes that no one claims, perhaps they should be seized under “eminent domain” by the city or county, and sold at a nominal price to anyone who agrees to live in the home and maintain it. Apartment buildings would be more difficult; perhaps housing co-operatives could be encouraged to take them over. If all else fails, the only thing to do is probably to raze the buildings, plant some trees, and call it a park.

I think pressing the “Reset” button on home mortgages (or at least some of them) would help. But nothing will change the fact that we are in a state of transition from one age to another—and that such transitions are never painless.
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.Fabius Maximus replies: I strongly agree. There are far better ways to handle this crisis. Three I believe would make the most difference:

(1) Allowing bankruptcy judges to write-down mortgage loans — as it done for other loans.(2)* Large-scale expansion of programs (done on small scale today) allowing conversion of mortgaged homes to rentals — skipping the painful and expensive process of foreclosure and eviction.(3) Allowing creditors a choice at the when filing a notice of foreclosure to abandon title to the owner or local government. If they choose not to do so, they assume a full obligation to maintain the property (including security) until sale or rental. With heavy penalties for non-compliance.

The problem results not from from lack of potential solutions but lack of foresight (what I call a broken OODA loop) and slow government response.

“Their wealth will be plundered, their houses demolished. They will build houses but not live in them; they will plant vineyards but not drink the wine. (Zep 1:13 NIV)”

The people are blinded and the leadership gone to pot before a small letter day of the lord. In modern language, the OODA loop is broken. The people won’t hear reality but want prophets of peace and the leaders become like children. At this rate, Americans should probably get used to praying for the health of the Chinese state. That would be a preferable exile to sharia which looks like Europe’s fate.
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.Fabius Maximus replies: A timely and appropriate quote!

Here is an alternative proposal:
Give a green card to anyone who buys a house and pays $10,000 in “administrative fees”. This increases the size of the market and generates more consumers for the american economy.

Everyone understands that during previous social collapses, things were not as integrated as they are now, fine. We also understand that access to modern industry provides such an advantage, that it’s better to live in squalor in a megacity than to have a pastoral, old style life in the third-world.

The elephant in the room is pollution, not global warming, but pollution. A true collapse, where cities are reclaimed by the bush, is happening in Detroit and may happen elsewhere: “To urban hunter, next meal is scampering by“, Detroit News, 2 April 2009 — “Detroit retiree, 69, supplements his income by living off the land”

PCBs, toxic waste, mine tailings, e-waste, and other horrors held in check by well maintained infrastructure become more, not less of a problem as that infrastructure decays, and people try to do the normal thing and return to pastoralism when urban civilization falls as it has so many times in the past.

We have one chance.
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.Fabius Maximus replies: Great point. The dirty urban biozone is not a good spot on which to return to the land, and a horrible environment on which to scavenge. While this is probably a minor problem in rich nations like the US, where only people who fall through the cracks of the safety net are reduced to this, it is important to remember that recessions in 3rd world nations produce suffereing unimaginable to most Americans.

For those folks who get freaked out at the notion of deliberately tearing down unoccupied houses…folks, please recall that when a house goes unoccupied long enough and gets vandalized, the city will eventually condemn that house and bulldoze it.

The only question isn’t “whether” to tear down abandoned houses…but when and how.

BTW, I don’t know whether FM’s proposal would help. I do know that what’s being done now isn’t working. If you doubt, take a look at Detroit.

Well, FM, you did an excellent job demolishing my offering re the homeless; however the data is very squishy all round and probably
a) many of the short-term homeless are those who move from shelter to shelter, i.e. are homeless for much more than a few nights
b) few figures are available nation-wide especially since the steep recession started to hit about a year ago with unemployment and foreclosures still increasing.

If things turn around, it’s a minor issue. If they don’t, it will become more relevant, albeit in the context of this thread the point was just to raise a certain irony in solving a housing crisis by destroying homes when so many are without one. Not a big point, but worth consideration.

However, in the context of a call for a national policy to fix the ‘housing crisis’ by bulldozing many of them into oblivion it seems to me that first there is a big difference between exceptionally devastated areas like Detroit and the overall national foreclosure-related ‘housing crisis’ which itself is regionally variegated.

Furthermore, many legal levels are involved, including the systemic muddle between corporate ‘servicers’ and ‘investors’, many of which latter ‘own’ the mortgages in bundled ‘securities’ arrangements without any relationship to individual properties, meaning that neither the servicers nor the mortgagees are prepared/willing to deal with the empty house consequences their foreclosures are increasing. Also, although it sounds easy to simply call for more bulldozing, in fact it isn’t: who gives the order? Who pays the check? Is this a Federal initiative, a State initiative, a county or municipal initiative and in each case where is the legal grounds for it, how is the decision made?

In short, a reasonable idea to float for purposes of discussion, practically speaking it is rather vague (just as numbers of homeless and/or unnecessarily incarcerated millions are squishy/unknowable).

Are you calling for some sort of Federal Government mandate to go in, overcome the thorny legal and budgetary issues, and start bulldozing houses all over America to solve the ‘housing crisis’? I think that is quite a socialist step for the US. If not, it’s a very woolly topic.
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.Fabius Maximus replies: While I think you are correct about the scale of the problem, I disagree with the rest. This is not a difficult problem, nothing like the far more complex and intractable ones that lie in our future. No need to guess as to my recommendations, as I mentioned a few simple solutions in comment #15 above (I am confident experts could devise better ones). As for the classic urban renewal tool of bulldozers, that hardly needs Federal action; cities have used condemnation and demolition for decades.

My point about this crisis, which I have frequently mentioned (why is this difficult to see?), it that the housing crisis illustrates our broken observation-orientation-decision-action loop. It never should have been allowed to happen. It’s consequences should have been promptly been dealt with. As such IMO it illustrates our deep and serious national “illness.”

Demolition contractor Craig Crawford has a foundation-level view of Cleveland’s housing market, and he sees a lot of unbuilding ahead.

Contractors who cashed in on the boom are now tearing down buildings, Crawford said in an interview amid the loose bricks and splintered wood that once composed the Eddy Chateau apartments. He hopes his business will thrive with a reappraisal of all Cuyahoga County properties next year and a push to tear down vacant homes to improve neighborhoods and stabilize values, he said.

“Anybody with an excavator is now a demolition contractor,” Crawford, 46, a co-owner of C&J Contractors, said in front of his backhoe as he razed the complex on the city’s east side. “Excavators that were digging basements two years ago are now knocking down houses.”

As much as U.S. cities such as Cleveland suffered during the recession, the full impact won’t be felt until periodic reappraisals reflect the decline in market values since the housing bubble burst in 2007, said Jacqueline Byers, research director for National Association of Counties.